In both The Post and the Herald this morning there are reports of interviews with executive members of the Reserve Bank’s Monetary Policy Committee: the Bank’s chief economist Paul Conway in The Post and his boss, and the deputy chief executive responsible for monetary policy and macroeconomics, Karen Silk in the Herald. In a high-performing central bank the holders of these two positions should be the people we look to for the most depth and authoritative background comment on monetary policy and economic developments. But in New Zealand we are dealing with the legacy of the Orr/Quigley years where we struggle to get straightforwardness, let alone depth and insight.

Now, to bend over backwards to be fair, interview responses will depend, at least in part, on what the journalist concerned chooses to ask. But then standard media training advice is to answer the question you wish they’d ask, not (necessarily or only just) the one they did. An interview with a powerful decisionmaker is a platform for the decisionmaker.

The Conway interview appears somewhat meandering and not very focused. I wanted to touch on three sets of comments in it.

First, asked about the transition after Adrian Orr’s sudden (and unexplained) departure, he says it is business as usual and it has been “a very smooth transition”.

“I think this institution is bigger than even Adrian Orr [it was certainly bigger – much bigger – as a result of Adrian Orr]……There’s a real sense of the ‘show must go on’ and it really has. We miss Adrian. It is a bit less fun around the place, less jokes going on – probably more appropriate jokes”, he smiles again.

So in addition to Orr being a bully, an empire builder, and someone well known for freezing out challenge and dissent, he also created an uncomfortable and inappropriate working environment? Or at least that is what Conway appears to be saying about the man who recruited him.

But you also wonder about just how straight Conway is being (and why the journalist didn’t ask more). After all, the Bank itself tells us there are big changes afoot (presumably consequent on the new Funding Agreement, prospect and actual). In the just over two months since Orr resigned, the top tier of management has been brutally slimmed down (credit to Hawkesby). At the start of March there was the Governor and an Executive Leadership Team of seven Assistant/Deputy Governors and one “Strategic Adviser”. Since then, Kate Kolich, Greg Smith, Sarah Owen, Simone Robbers and Nigel Prince have all either left already or we’ve been advised they will soon be doing so (none with an announced job to go to). Governor plus eight has been reduced to Governor plus four. And

That first group is Conway’s own level (though presumably the Bank will continue to need a chief economist). And then on down to the staff (and much of this is because Orr/Quigley massively blew the budget limit Grant Robertson had set for them and went on one last hiring spree last year). You somehow suspect that all is not exactly sweetness, light, and engagement at the Reserve Bank.

And then there was this

Conway is on record as a bigger-government sort of guy (we had his extra-curricular stuff last year, as an example) but what possessed him, interviewed as an MPC member and senior central banker, to suggest that more state interventions and bigger government might be “worth thinking about”? It simply isn’t in his bailiwick, and he shouldn’t have allowed himself to be dragged into responding to a hypothetical, especially about one outside the Bank’s responsibilities.

And finally, we got the meandering thought that “it’s possible that we get to a point where people just adjust their behaviours and ‘uncertainty’ becomes the new normal and we just get on with it. I’ve got no ’empirics’ to base that on – it’s just, I think, a very interesting thought-stream.”

Really? A “very interesting thought-stream” that people do in fact adapt to the world as it is? Startling and insightful (not).

Then, of course, there is his boss, Silk. Most serious observers regard her as fundamentally unqualified for her job, and not the sort of person who would be likely to be on an MPC anywhere else in the world, let alone as the deputy primarily responsible for monetary policy. She can be counted on to safely deliver speeches on operational topics that others have written for her, and to answer purely factual questions at MPS press conferences and FEC about what has happened to swap yields and mortgage rates. And that is about all.

She also seems to have a mindset in which rates being paid on existing mortgages are what matter rather than the rates facing marginal borrowers and purchasers. Perhaps it is what comes from a non-economics background in a bank? Thus, in the Herald interview we are told that she claimed that “the effects of the 225 basis points of OCR cuts the committee had delivered in less than a year were yet to be widely felt”. The journalist added some RB data on average actual mortgage rates which might appear to back that up. Of course, expected cash flows matter as well as actual ones – if your fixed rate mortgage is going to roll over in a couple of months onto a much lower rate that will almost certainly be affecting your comfort, confidence, and willingness to spend now. But more to the point, marginal rates for people looking at buying a property or otherwise taking on new debt have come down a long way, and were already down a long way months ago. This chart is from the Bank’s own website, showing short-term fixed mortgage rates.

As at yesterday, rates were a few basis points lower again than the end-April rates shown here. 200 basis points plus down from the peak, and that not just yesterday. And falling wholesale rates, which underpin these falls in retail rates, also affect the exchange rate, another important part of the transmission mechanism. (And, of course, with all Silk’s focus on the cash flows of existing borrowers, she never ever mentions the offsetting changes in the cash flows for existing depositors – I’m of an age to know!)

So far, so predictable (at least from Silk). But then there was this (charitably I’ll assume the word “fulsome” was not hers)

Reasonable people might differ over the inflation outlook and the required future path for the OCR, except that we were told in the MPS that there was unanimous agreement from the MPC to the forecast path for interest rates. And that is a path that is lower from here than the path published (again unanimously) in the February MPS (the deviation begins after the May MPS, not at it). In other words, not only did the February path show some further easing from (where they expected to be, and were, by) May onwards, but the May path shows even more easing from here forward.

And yet Silk talks of a “much stronger easing signal” sent in February.

Frankly, they seem all over the place. If the Committee (as it did) unanimously agrees to publish a (somewhat) steeper downward track than the one you had before then either you have an easing bias – always contingent on the data of course – or you made a mistake in adopting the track you did. And if you are comfortable with the track, it feels like a mis-step for the temporary fill-in Governor to announce that there was no bias. I guess Silk might have got stuck having to cover for her fill-in boss, but it is a pretty poor look all round. Surely (surely?) they must have rehearsed lines about biases before the press conference? Surely, if so, someone pointed out the disconnect between the proposed words and the chart above?

And finally from Silk we learn that “price stability is one of the conditions you need for growth”. It simply isn’t – and the economists on the committee are usually much more careful, with the standard central banker line being that price stability, or low and stable inflation, is the best contribution monetary policy can make (many muttering under their breath that that contribution isn’t necessarily very large). Not to labour the point but the economy was still growing, reaching its most overheated point in late 2022, when core inflation was around its worst.

All in all, not a great effort at communications from the MPC this week. As I noted in my post on Thursday, there was none of the prickly frostiness of Orr, and no sign of deliberately or conscious setting out to mislead Parliament, but it simply wasn’t a very good performance. And while Hawkesby is new to the role, chairing MPC and acting as its prime spokesperson on the day, Conway and Silk have no such excuse. Someone flippantly suggested that perhaps there is something about May and the MPC – last May was when the MPC went a bit wild talking of raising rates further (the OCR was still going to be above 5 per cent by now), and then Conway tried to blame his tools, rather than the judgements of him and his colleagues, for the associated forecasts.

If the government is at all serious about a much better, world class, Reserve Bank, they need to work with the Board to find a Governor who will lift the game and the Governor/refreshed Board will need to work with the Minister to produce a stronger MPC. It would seem unlikely that in such an improved Bank/MPC there would be a natural place for either Conway or Silk, pleasant enough people as they may be.